Essays on Accounting For Business Article

IntroductionBackground: Ian Scott is looking forward to purchase Boomaloo Pty Ltd from Marcus Markup which is into fishing business. Ian wants to look at the future prospects and the manner his investment will fetch him returns before making a financial decision. Ian is looking towards the financial analysis before deciding his future course of action. Financial analysis is very important for all business. Analyzing the statement helps in “planning, budgeting, monitoring, forecasting and improving the financial performance by taking vital decision”. (Micro Strategy, 2010It helps to identify trends and compare with competitors and industry to gain advantage.

Purpose of the report: To identify and evaluate the financial statement of Boomaloo Pty Ltd with a view to provide recommendation to Ian Scott whether purchasing the company will be beneficial in the long run considering the nature and risk involved. Scope: The report looks into various aspects but doesn’t take into consideration the inflation level, the changes in technology with regard to production, marketing and distribution. ProfitabilityThe profitability ratios help to find the manner in which the company has performed in relation to its bottom line i. e.

profits. Some of the ratios in that direction areReturn on Assets: “It is defined as the amount of profit generated for per dollar of asset”. (Friedlob & Schleifer, 2003) It helps to identify whether the assets are utilized properly or underutilized. It shows consistency over the years highlighting that despite increasing completion the assets have been well managed. Even the trend and horizontal analysis supports the fact that both assets and profits have shown consistency. Gross & Net Profit Margin: Gross profit helps to find out the actual profit that is attributed directly to the product.

Net profit is the profit after all expenses are met. Both the ratios show soundness and match the industry standard of 30% and 10% highlighting proper management. The efficiency of this ratio multiplies when we look at the trend analysis which shows that despite increasing competition the sales and profits have not dipped much. Price Earnings ratio: “It is defined as the market price of share per earning per share”. (Summers & Smith, 2010) The ratio shows soundness and is due to high EPS the company has generated.

This has made the P/E ratio to be high and suggest that the company has a scope of growth in the future. Dividend Ratio: The dividend ratio shows inconsistency as it has fallen in 2010 as compared to 2009. This has been purely due to reduction in dividend which can be attributed to the decline in profits. A look over the trend shows that profits haven’t dipped so the company has decided to distribute fewer dividends to ensure growth by re-ploughing the profits. The overall profitability seems sound.

Even the trend analysis presents the same as profits in comparison to 2008 has not dipped much. The same has been highlighted by the horizontal analysis. The profitability can further improve if the business pays its creditors early which will save around 3 to 5%. Further the opportunity presented by associate charter hire booking service presents a bright picture for Ian. Liquidity